Thursday, May 31, 2012

Proton is the price we pay for brainless patriotism by Koon Yew Yin The founding of Proton National Bhd in 1983 was a big expensive mistake to begin with. Billions of ringgit from taxpayers have been lost in the process.

The haemorrhage could not be stanched until only recently when Khazanah Nasional Berhad sold off its 43 percent stake in Proton to DRB-Hicom a few months ago. Malaysians have been wondering – is this finally an end to the unhappy saga of the government’s foray into the production of a so-called ‘national car’ or will the burden on taxpayers and car owners be continued in other new ways?

A revisit of this white elephant project is necessary to generate a larger public discourse especially amongst taxpayers who should be more concerned as to where all the tax money they’ve been paying has gone to.

One simplistic assumption which appears to have been made by the initiator of the national car project Dr Mahathir Mohamad is that an industry that is growing yearly should be profitable. It is not. In fact, industry data shows that the total profits of all the car companies over the last decades amount to only a modest return, and that only for the fittest in the industry. The British experience Consider the case of British Leyland, a vehicle-manufacturing company formed in the United Kingdom in 1968. It was partly nationalised in 1975 with the government creating a new holding company. The company incorporated much of the British- owned motor vehicle industry, and held 40% of the UK car market.

Despite containing profitable marques such as Jaguar, Rover and Land Rover, as well as the best-selling Mini, British Leyland had a troubled history. In 1986 it was renamed as the Rover Group, later to become MG Rover Group, which went into administration in 2005. This ended mass car production by British-owned manufacturers.

Today, many British car marques have transferred their ownership to foreign companies. For example MG and the Austin, Morris and Wolseley marques have all become part of China’s SAIC Motor Corporation Ltd. Mistake avoidable Why Dr Mahathir failed to learn anything from the disastrous British car industry experience is something that completely escapes many Malaysians. Surely any good leader would have gotten his officers to do due diligence.

If they had done so, they would have found that the industry even with year-on-year rises in sales is not guaranteed to generate good returns to shareholders. Notwithstanding its long tradition of successful car manufacture and the country’s highly developed economy, the industry in the UK still failed to make profits.

The reason for this situation is because one of the forces that limit profitability is the intensity of rivalry between car companies from around the world. This leads to oversupply and pressure on prices, further exacerbated by a high degree of freedom for new competitors to enter the industry.

Unless there is an enormous internal market such as China’s or the United States, and we can take advantage of the economy of scale, small producers such as Malaysia are forever doomed to a minor placing, or bankruptcy, in the marketplace. Played out by MitsubishiAs far as Proton is concerned, Mahathir’s mistake in ignoring the economic fundamentals of the industry was compounded by our lack of expertise or comparative advantage to produce cars. The anticipated technology transfer from Mitsubishi did not take place.

This should have been anticipated. Why should Mitsubishi transfer their know-how to Malaysia when it can control the pace of transfer to maximize its profits? In fact, the top management of Proton should ask Mitsubishi to open their books to see how much profit they have made from Proton since it began operation.

Mitsubishi knew that Proton could not do without them and they were quite happy to continue making money from Proton while the company here continued to bleed to death.

Equally important was the poor quality of management. Just before the privatization exercise, Proton had accumulated RM4 billion during Tengku Mahaleel Ariff’s tenure as chief executive officer but its cash reserves had dropped to RM600 million during his successor Mohammed Azlan Hashim’s stewardship, according to Mahathir.

To encourage people to buy Proton, the government increased the import duty for other cars and car parts. As a result, the consumers have suffered. For over 30 years we have had to pay higher prices for all cars including Proton. Even this has not been sufficient to save Proton which has been sold five times already.

Another question to ask is why few car manufacturers, until recently, seem to get into bankruptcy? If so, then prices can rise relative to cost and shareholders can get a fair return.

There are two main reasons. In some countries there is always the perennial optimism of managers and shareholders. In Malaysia, the reason is different. Here, our government has been changing rules and regulations to obstruct other cars from entering our market whilst providing special favours including an ever ready supply of financial assistance to keep Proton afloat.

The end result is that some Malaysians have ended up with more expensive cars of other brands whilst most Malaysians have had little choice but to buy Proton – a poor substitute.

This is the price we have to pay for brainless patriotism. Proton’s and our never-ending problemsOurs is a sorry saga which is a classic case study on how not to set up a car industry. As with the national airline, I propose that a special course on our experience with Proton be offered in the Institute of Tun Dr Mahathir Mohamad’s Thoughts.

What better way to honour the ex-premier than a post-graduate course on his pet project – the National Car – and inviting him to be a guest lecturer. I am sure he will have lots to share and many people to blame as to why the project has failed.

Earlier this year tycoon Syed Mokhtar Al-Bukhary was allowed to take full control of Proton. Since the sale, Proton’s problems have continued through its loss-making subsidiary, Lotus. In March, the conglomerate was forced to put in place a team of consultants to conduct an audit on the Lotus group of companies.

The need for this review was pertinent in light of the financial obligation of Lotus in the form of a £270 million (RM1.3 billion) syndicated loan taken at the end of 2010, for which Proton had given its corporate guarantee.

In March, Proton, in its third quarter results, noted that its subsidiary was in a technical breach of certain post-drawdown covenants on its long-term loan. For now, the loan amounting to RM1.01billion has been re-classified as a short-term loan as at Dec 31 until the receipt of approval for the extension of time.

Although the new owner of Proton undoubtedly has deep pockets (he is the 7th richest man in Malaysia) and owns a business empire that covers ports, the postal service, power, defence and financial services, besides automobiles, we can expect him to recoup his losses by raising the prices further on Proton thus burdening our car buyers, and by charging higher prices for the other goods and services that he is involved with.

In any way, the Malaysian consumer will continue to be suckered by the national car debacle.

Wednesday, May 30, 2012

I usually do not refer back to my previous postings even when its "right". Just look at the financials of their latest quarterly. Naturally, the contribution from Kian Joo served as a huge fillip to their bottom line. No matter how you cut it, its still 59 sen EPS per quarter. So technically, ONE TIME P.E.R.??? Of course you have too look at the liabilities jump from having to purchase, just over RM300m. Gawd, they made RM90m in one quarter, they probably can cover the entire liability in a year.

Even if you take out Kian Joo, Can-One's own operations did spectacularly well too. They posted RM12m profit, last year same quarter was RM4.5m. Are we convinced?

Tuesday, May 29, 2012

A special person shared with me last week about attending a talk by a 'wise person', and that it is important to "learn how to let go". To let go of our bad memories, failures, unproductive ways, etc... To which I replied that "we always hold onto people who don't love us or people who hate us or people who make us mad or people who take us for granted ... we also care too little for the people who love us unconditionally, the people who adore us, the ones who still stick around in spite of all your shortcomings". Such wasted priorities. Live the life we want, don't resign to fate, don't waste it waiting for those who never intend to turn up, don't waste it on bad memories of those who wronged us, don't dwell on regrets and failures ...

I think this might be an advertising thing, but magnificently crafted and very meaningful, and probably based on some 6 old foggies' true life story. Love the Chage Aska song in the background, On Your Mark.

Saturday, May 26, 2012

Since the global economy largely went off the Bretton Woods system where gold deposits was secured by issuance of currency, we have not encountered such a drastic debasement of major currencies. Basically when a country prints their own currency without "significant backing or financial reserves", you are assuming the rest of the world are idiots. If Malaysia tries to do that, nobody will accept the ringgit at 3.0 vs the USD, it becomes monopoly money.

However, the USD is a reserve currency, closely followed by the Euro and the British pound. Its OK to print as long as the central bank also "withdraws" the money from circulation later on. Do you see that happening over the next 5 years?

Supposed when you print (irresponsibly), the worth of that currency adjusts itself in the markets, but we all know that has not been the case.

First, if a country prints more currency to manage their affairs, this results in higher inflation. This is what most developed countries are doing today. Secondly, and most importantly, the value of the country's currency becomes less valuable due to inflation (currency debasement) since over time inflation is a killer of currency value. Finally, the cost of borrowing will eventually rise. This becomes tricky because when the cost of borrowing rises it becomes much more difficult to repay the borrowing. A vicious cycle can develop. We are seeing that today with Greece.

However, we see little inflation as we are all in a liquidity trap. Banks and other institutions just hoard the money. If the samae amount of money goes to work in the system, you have a strong multiplier effect, which meant that more funds will chase for the same goods and services, thus driving up prices of everything, stock prices and real estate included. Again, none of that has happened in those country.

However when things really "stabilise" in Europe and the US, we will see the above chain reaction. Technically, when that happens the central banks should "withdraw" some of the printed money from the system. However, they are unlikely to do that till much much later, and even that, rest assured it will be a minor fraction of the amount they actually pumped. Look at the "amount of currency debasement" by the central banks. It has gotten to a point of no return.

So, who loses out, the rest who did not print their currencies irresponsibly. The more we invest in USD, Euro, the more we are showing our backside and telling them to please screw us.

Everything being equal, if they die, its no good for the rest of the world's economies. Is that part of the insurance we pay? So, when you buy that New York or Florida apartment, when you buy the high yielding foreign currency bond, think again. The rest of the world MUST PUNISH these "bad behaviour".

So, we have to strike a balance. If you are very rich, try to shy away from assets denominated in these currencies. As I think they will not do the prudent moves over the longer term. Its best to consider other asset classes that will be able to withstand the cycle of currency debasement, which has reached gigantic proportions.

CONSIDER:

Arable land with a dependable climate

Oil-refining capacity

Electricity generating capacity

Water-treatment capacity

Drinking water, bottled or piped

Coastal access, harbours and ports

Palladium/platinum/diamonds

Real estate in long-standing, distinctive locations

Antiques, fine art, stamps and coins

Commodities without futures and options markets

Or, if you are just another middle class person like me, if you have excess cash, put in HKD and SGD. The latter is financially one of the strongest currency. The former is very ripe to unpeg from the USD, which should bring forth at least a 20% revaluation. No way can the HK economy continue to be pegged to the USD. I suspect they will revert to a combination peg of the yuan, yen, euro and usd .... sometime. When will that happen? When the USD falls into a hole (i.e. dropping more than 30% in a year in value).

Thursday, May 24, 2012

Barry Gibb has paid tribute to his brother and Bee Gees bandmate Robin by releasing a touching farewell video.

The remembrance clip, set to the Bee Gees ballad Heart Like Mine, features never-before-seen home video footage of the Gibb brothers as kids, as well as career highlights and live performances.

The montage, which Barry posted on his YouTube page, is titled Bodding - Robin’s nickname. The singer lost his battle with cancer at the age of 62 on Sunday and Barry, the sole surviving member of the trio, has yet to make a public comment on his sibling’s death.

Robin’s twin Maurice died in 2003 of complications linked to a twisted intestine.

Wednesday, May 23, 2012

Call it modern art, modern dance, creative graphics ... you cannot deny the creative geniuses behind this two performers. Black Sun is a meticulously choreographed projection of motiongraphics onto dance,combining traditional and modern elements of Japanese culture and martial arts. Artist Nobuyuki Hanabusa and dancer Katsumi Sakakura, together known as Kagemu, have since been widely imitated by others....

It is common to hear The Beatles as the best group ever in terms of musicality, composition and longevity. So what about The Bee Gees? Now that 3 out of the 4 brothers have left us, maybe its time to reassess the true worth and rightful standing of The Bee Gees.

Why The Beatles is so famous? Their music was mind changing, innovative, and brought a whole new meaning to rock and roll. Their members' lives were esoteric and hogged the media. They proclaimed for world peace, engaged in Eastern philosophies, they were cool to the max ... they were anti establishment. They rooted for the hippies, the disenfranchised, the disenchanted ... They were more than musicians, they were more than performers. The media loved them. They Brits were proud. The Americans wanted to call them their own. The whole world wanted to love them because they were "cool".

The Bee Gees were enormously successful in the early years, on par with The Beatles. Maybe because they did not do as much drugs as The Beatles? They were not as cool, they were regarded as "middle of the road" stuff. Good stuff but not lasting, so they say. The Bee Gees did not have a "home". The Australians did not really "own" The Bee Gees, the band members did not really identified themselves as Australians. The British did not really adopt them as their own. Their success in the US was always muted at best. Nobody wanted to "own" them as their own.

The Bee Gees' longevity in the business was more than double that of The Beatles. we all know how difficult it is to have a musical career lasting more than 10 years, particularly if you are in the singer-songwriter group. If you were a really good crooner, you can last ages, like Sinatra, Buble, Striesand, etc...

While The Beatles basically stopped in the 70s, albeit The Wings were excellent and George Harrison had some sparkle, plus John Lennon created some fine transformational stuff. The Bee Gees reinvented themselves in the late 70s and were quite instrumental in being a major player in the disco era. Now, the disco era was frowned by most music critics as being a fun but shallow part of musical history, but hey, disco was a critical part of musical history whether you like it or not. Even now, people keep going back to the fun times of 70s and 80s music in radio stations and just look at the reissued CDs that are selling nowadays, its the 70s and 80s music.

Many critics used the disco era music to further downgrade The Bee Gees' achievements. Having said that i think their Spirits Having Flow album was easily the landmark album in the early 80s.

The Beatles albums remain iconic and stood the test of time, The White album, Abbey Road, Sgt Peppers, etc... nobody really bothered with The Bee Gees. One thing which The Bee Gees may have lost out was their lyrics, which The Beatles were more subtle and have higher ambitions in conveying their messages. But having said that, much of The Beatles early stuff were also shallow type of lyrics.

I have compiled The Beatles' great songs that marked their career, most were hits but I have included others which have been significant as well:

A Hard Day's NightA Taste of HoneyAcross The UniverseAll My LovingAll You Need Is LoveAnd I Love HerBack In The USSRBlackbirdCan't Buy Me LoveCome TogetherDay Tripper Do You Want To Know A SecretDrive My Car Eight Days A WeekEleanor RigbyGet BackGood Day SunshineHello GoodbyeHelter SkelterHere, There, EverywhereHelp!Hey JudeHippy Hippy ShakeI Am The WalrusI Feel FineI Saw Her Standing ThereI Should Have Known BetterIf I FellI WillI'll Follow The SunIn My LifeLet It BeLove Me DoLucy In The Sky With DiamondsMichelleMoneyNo ReplyNowhere ManObladi ObladaPaperback WriterPlease Please MePlease Mr PostmanP.S. I Love YouShake Rattle and RollRock and Roll MusicSgt Peppers Lonely Hearts Club BandShe Loves YouShe's Leaving HomeShoutSomethingStrawberry FieldsTaxmanThe Fool On The HillThe Long and Winding RoadTicket To RideTwist and ShoutWe Can Work It OutWhen I'm 64While My Guitar Gently WeepsWith A Little Help From My FriendsYellow SubmarineYesterdayYou've Really Got A Hold On MeYou're Gonna Lose That GirlYou've Got To Hide Your Love Away

65, thats 65 fucking awesome songs. What about The Bee Gees?

AloneChain ReactionCome On OverDon't Forget To RememberEmotionsFanny Be Tender With My LoveFirst of MayFor Whom The Bell TollsGuiltyHeartbreakerHolidayHow Do You Mend A Broken HeartHow Deep Is Your LoveI Started A JokeI've Gotta Get A Message To YouIf I Can't Have YouI.O.I.O.In The MorningIslands In The StreamJive TalkingLonely DayLove So RightLove You Inside OutMassachusettsMelody FairMore Than a WomanMy WorldMr. NaturalNew York Mining DisasterNights On BroadwayNight FeverOneOur Love (Don't Throw It All Away)Rest Your Love On MeRun To MeSpicks and SpecksSpirits Having FlownStaying AliveThis Is Where I Came InTo Love SomebodyTragedyToo Much HeavenWarm RideWoman In LoveWordsYou Should Be DancingYou Win Again

That's 47 great songs. Not bad at all. Fair to say, The Beatles output were more vociferous and had more quality but The Bee Gees are not far behind. Nowadays, its not cool to like The Bee Gees. That should never be the case.

Tuesday, May 22, 2012

Can we at least come to some conclusion about the
state of Chinese companies that are listed overseas. We hear of scandal after
scandal, from HK to Singapore to the States. Its almost shocking that none in
Malaysia has imploded (yet), not that I am wishing any of them to fall out of
grace.

This is not to say that Chinese companies listed in
their own China exchanges are all fantastic. There have been plenty
of shenanigans there as well, but not as prevalent as those which chose to
list overseas. Its not likely that they were better managed, but rather to be
caught in China for fraud, bribery, accounting misstatements, etc... poses very
big penalties, big fines and sometimes "capital punishment". Maybe
overseas laws are more humane and some think they can get away with murder.

Below are some of the bigger scandals (not
including the Sino Forest thing):

2011 - Hong Kong-listed Real Gold Mining Ltd , an
Inner Mongolian company, halted trading in its shares on May 27 after a
newspaper report said the miner had filed one set of accounts with the Hong
Kong stock exchange and a much different one with China's central government.
The stock has been suspended from trading since.

2011 - Hong Kong's securities regulator was seeking
to freeze the assets of the chief executive of China Forestry Holdings Co Ltd ,
which was being investigated for accounting irregularities, a court document
showed in February. The Securities and Futures Commission has applied to the
high court to freeze up to HK$398 million ($51 million) in assets belonging to
Chief Executive Li Han Chun, according to a court statement obtained by
Reuters. China Forestry shares have been suspended since Jan. 26 after auditors
KPMG found possible irregularities during their audit for fiscal 2010, the
company said in a filing to the Hong Kong stock exchange in late January.

2010 - Chinese textile firm Hontex International
Holdings Co Ltd was listed in December 2009 and just three months later, its
shares were suspended after the SFC alleged that its IPO prospectus had
"materially overstated" its financial position. The SFC has
successfully managed to freeze assets equivalent to the sum Hontex raised in
its IPO. Investors have yet to see their money returned, with a debate
continuing in the courts about the methods the SFC is using to reclaim the
money.

2010 - Shenzhen-listed Yunnan Green Land Biological
Technology Co Ltd and its management were reprimanded by the Shenzhen bourse
for seriously overstating profit in 2010 and 2009, according to the Shenzhen
stock exchange.

2010 - Huang Guangyu, China's one-time richest man
and the founder of retail chain GOME Electrical Appliances Holding Ltd , was
found guilty in May of bribery, insider trading and illegal business dealings.
He was sentenced to 14 years in jail.

2006 - Chinese appliance maker Guangdong Kelon
Electrical Holdings Co Ltd and a number of former executives were fined for
fraudulent accounting and other improper behavior. The company said it was
found to have inflated revenue by 1.2 billion yuan and its profit by 120.42
million yuan between 2002 and 2004. Former chairman Gu Chujun was sentenced to
10 years in prison for embezzlement and accounting fraud.

2004 - Singapore-listed jet fuel trader China
Aviation Oil (CAO) stunned markets with a $550 million trading loss when it
took risky bets on oil derivatives, triggering Singapore's biggest corporate
scandal since the collapse of Barings Bank in 1995. A Singapore court later
sentenced the man at the centre of the scandal -- former CAO Chief Executive
Chen Jiulin -- to more than four years in jail.

2004 - Stephen Wong, chairman and an executive
director of China's third-largest television maker, Hong Kong-listed Skyworth
Digital Holdings Ltd (0751.HK), was charged by Hong Kong's anti-corruption
watchdog with allegedly misappropriating more than $6 million in company funds.
Wong was later sentenced to six years in jail for plundering company funds and
share option fraud.

2003 - Zhou Zhengyi, then China's 11th richest man
controlling two Hong Kong-listed companies, was detained in 2003 after an
investigation into 2 billion yuan in loans obtained from the country's primary
forex lender, Bank of China Ltd . Insiders said senior Shanghai government
officials, including the city's then-Communist Party boss Chen Liangyu, had
been instrumental in helping Zhou win approval for crucial city projects that
were later implicated in the scandal. In 2008, a Shanghai court upheld a 16-year
jail sentence handed down to Zhou. He was found guilty of five charges
including misappropriation of funds, bribery and forging VAT receipts. The
scandal had weighed on China's financial markets and sparked a rash of arrests
as probes into Zhou's links with the Shanghai government and his lenders
widened. Chen Liangyu was sentenced to 18 years in jail in 2008 for taking
bribes and abuse of power.

2003 - Chinese orchid tycoon Yang Bin was sentenced
to an 18-year jail term for commercial crimes, including contract fraud,
forging financial instruments, bribery and illegally occupying and using
farmland. Yang was once ranked as China's second-richest man with an estimated
fortune of $900 million. His company Euro-Asia Agricultural (Holdings) Co Ltd
was delisted from the Hong Kong stock exchange in 2004.

Some interesting statistics, can they lie?:

a) more than 20 China companies listed in Singapore
since 2008 have been delisted or suspended, out of 150 odd China companies
listed there

b) Nasdaq and
NYSE Euronext halted trading in the shares of at least 21 small- and micro-cap
Chinese companies in the past year. Five such companies were altogether kicked
off of the exchanges.That was after 150 companies listed there since 2007 till
2011. So the odds were very close to the Singapore experience.

c) Since 2010, some 110 China
companies have gone public in HKSE, their current prices is 15.8% off their IPO
price as of end April 2012. Non- China companies listed in HKSE since 2010 have
gained 6.5% over the same period. Statistically, that is "highly
significant".

d) Since 2010 some 53 China
companies have listed in the US. As of end of April 2012, they are on average
down 38% from their IPO price, compared to a 9.9% gain for other IPOs.

I believe a lot more
"action" will be found in the States, where more than 150 China
companies have listed there because short selling is allowed, and there are
plenty of research firms and hedge funds whose bread and butter is to locate
these "inflated" companies, short the hell out of them, expose them,
and reap the benefits.

Some of the scandals in
Singapore red chips:

1) China Gaoxian Fibre Fabric
Holdings Ltd. The Zhejiang-based maker of polyester yarn said on June 30 2011
that its auditors at PricewaterhouseCoopers LLP discovered the company’s bank
balance should be less than a tenth of the 1.1 billion yuan ($170 million) it
reported in its earnings.

2) In the case of FerroChina Ltd.,
shareholders lost their entire investment when the steelmaker was forced to
delist in March 2010 after being suspended for more than a year. The company,
which hired Merrill Lynch & Co. in April 2008 as an adviser to help it
be “the world’s largest and most efficient independent galvanized steel
manufacturer,” defaulted on loans in October of that year, weeks after
reporting quarterly net income had tripled.

3) Other stocks that have been
suspended include Sino Techfibre Ltd., which said a fire destroyed its
financial records after reporting accounting flaws, and China Sun Bio-Chem
Technology Group Co., which said a truck transporting its accounting records
was stolen.

4) Fibrechem Technologies.This
was one of the best-followed S-chips. The first sign of trouble surfaced when
the China-based chemical fibre-maker requested a trading halt on Feb 23 this
year 2009. That was the day it failed to release, as scheduled, its
fourth-quarter and full-year results. To the dismay of shareholders, the
firm's auditors indicated they had difficulty finalising the audit on its trade
receivables and cash balances as of the end of December last year. Before
the trading halt was imposed, the counter plunged seven cents, or 40 per cent,
to 10.5 cents, with 9.68 million shares traded.Meanwhile, founder and chief
executive James Zhang resigned from his position as executive chairman.

5) Beauty China. Since March
2 (2009), cosmetics firm Beauty China has requested three trading halts. The
problem centres on founder and chairman Wong Hon Wai who had, unknown to
shareholders, pledged all his stock - 137.5 million shares, or 38.57 per cent
of the share capital - to obtain credit facilities. Many agree that the
financial arrangement he made with his shares is material information investors
should have been told about via stock exchange announcements. The shares
plunged a stunning 26 cents, or 70.3 per cent, to 11 cents, with about 6.3
million shares traded, when the first trading halt was lifted on March
3. It soon emerged that his stake was being force-sold by the lender on
the open market to help repay the loan. In order to fulfil his obligations to
the financier, Mr Wong was forced to sell 28.8 million of the mortgaged shares
between March 4 and March 6, noted DBS Vickers.

6) Sino-Environment. The
waste treatment firm's woes started on March 2 2009 when it requested a trading
halt after its full-year results. It must have seemed like a recurring
nightmare to some investors, given the similarity to Beauty China's
problems. Sino-Environment chairman Sun Jiangrong had pledged his entire
56.3 per cent stake or 190.8 million shares, along with other assets, to hedge
funds to secure a $120 million loan. As he had difficulties repaying the
loan, the forced sale of the pledged shares was triggered. The hedge funds
had threatened to sell the shares on the open market. That would cause the
control of the company to change hands. It also might plunge the company
into a financial crisis, as it would have had to make immediate repayment on a
$149 million bond issue - triggered by the change of ownership. Trading
was suspended from March 6 and resumed on March 12. After the week-long
trading suspension, Sino-Environment plunged 73 per cent to eight cents on a
hefty volume of 47.4 million shares. The counter closed at 13.5 cent.

7) Oriental Century. On March
9 2009, education firm Oriental Century - in which local group Raffles
Education had invested $30.2 million for a 29.9 per cent stake - called for a
trading halt. It later shocked investors by disclosing that founder and
chief executive Wang Yuean had said he 'inflated sales and cash balances' over
the years and had diverted unspecified sums to an interested party. He
also claimed that he devised fictitious accounting to mislead management and
auditors into believing the firm had a cash hoard of 234 million yuan.

Trust The Auditors

Trust the auditors?
They don't even trust themselves. A small sampling of recent shame for some top
auditors is below. The scams perpetrated and slipped past auditors run the
gamut from the mundane, such as improper recognition of revenue, to the
incredible, such as hiding massive amounts of off-balance-sheet liabilities or falsifying billions of
dollars of cash. Surely, we can trust the auditors what, they are big names.
Well, lets look at the big auditors responsible for some big mess:

If there are even 20% bad hats, there
are still 80% decent companies, assuming all not found to be in breach are
really genuine good operators. So, what should they do now that their shares
trade at 1x, 2x, 3x PER?

1) Raise dividends to 50% of profits,
and make that a company policy. Many will come out with 101 reasons not to do
this, you may want to really ask why. Is a company's share price more important
than any other issues?

2) Privatise and relist in HK. In 2007, Want Want Holdings, a food and beverage
group which makes the popular rice crackers, delisted from the SGX and relisted
in Hong Kong in search of better valuations. It is now trading with a PE of over
20x times there, compared with 10 to 15 times in Singapore. So, XDL may have a
strong case for moving with this strategy.

If you have invested in a China company
listed in Singapore or Malaysia, there is very little you can do after you have
asked them to raise dividend. You then have to play the waiting game. I think
there are bigger and better fishes to fry while you lock up your capital on
something that may take a long time, or worse, turns out to be one of 20% which
fell foul of the law later on.

About Me

Its Salvatore cos' Salvador was taken already. This blog hopefully embodies Dali's spirit: intelligence, creativity, deep dreams, symbolism, whimsicality, enrichment of lives (p/s only Asian girls are featured on the left column)